Medical cannabis industry in Washington State on life support

By John Schroyer

Washington State’s marijuana industry appears to be evolving into a singular cannabis market, with almost no distinction between medical and recreational.

That’s the apparent outcome so far from the state’s move to merge its previously unregulated MMJ market with the heavily regulated adult-use businesses that materialized after voters approved rec in 2012.

The overarching result, say many on the ground in Washington State, is that most businesses and consumers are moving toward an industry that caters mostly to those who purchase cannabis, regardless of whether it’s used for medical purposes or simply for fun.

“That’s kind of where we’re headed,” said Maryam Mirnateghi, who is in the process of relocating her former Seattle medical dispensary so she can open a newly licensed retail shop.

State of the industry

Former medical dispensaries and collectives, which at one point were estimated to number over a thousand in the state, were required to obtain a new business permit from the Liquor and Cannabis Board (LCB) by July 1 or close. But only 222 more retail permits were available during a new licensing round after a regulatory change that increased the number of retail rec permits from 334 to 556.

That meant hundreds of medical storefronts were left without any way to continue operating legally.

Many of those closed without a fight, say industry insiders, though some were raided by law enforcement because they continued serving patients despite not having an LCB license.

Some that were able to make the transition still say there’s not much demand for formerly abundant medical cannabis products, and state numbers back that up.

According to the Washington Department of Health (DOH), as of mid-October, only 13,014 medical cannabis patients have signed up since July 1 to purchase “medical-grade” marijuana products such as higher-potency edibles.

That’s down from an estimated patient pool of over 100,000.

Part of the reason is that many patients don’t want their names on a state registry, Mirnateghi said.

Another reason, others in the Washington trade said, is that a medical card doesn’t provide much in the way of financial savings or more options for “medical grade” products. Registered patients are exempt from a 9.6% sales tax, but they still must pay the same 37% excise tax as rec customers.

“It’s a small savings, with not paying the sales tax,” said Jason Welty, owner of Loving Farms Marijuana Store in Mount Vernon, north of Seattle. And so far, he said, “I just haven’t seen a lot of (medical) products being offered that have the extra potency.”

In addition, all licensed cannabis retailers are required to obtain medical marijuana endorsements from the LCB and to have a state-certified MMJ consultant on staff if the shops want to serve registered patients as opposed to just rec customers. While the LCB medical endorsement is free, the consultant certification costs at least $395 per person plus a $95 DOH application fee and takes at least 20 hours to complete.

To date, 447 retailers have obtained LCB medical endorsements, said agency spokesman Mikhail Carpenter. But only 155 retailers have a certified medical consultant on staff, according to the DOH’s website.

“It doesn’t make good business sense, and that’s why only 155 stores are doing it,” said Karl Keich, the owner of Seattle’s Pot Stop, another former medical dispensary that was able to transition to the new system. “It’s something that actually negatively affects your bottom line.”

Keich estimated his customer base currently is only about 5% registered medical patients.

What it adds up to

Because of the depressed demand for “medical grade” cannabis products, many retailers haven’t bothered to finish wading through the red tape to obtain an endorsement or a medical consultant.

And if the patient pool remains fairly small, licensed businesses will likely respond in kind and focus more on the much-larger rec consumer base. That means less high-potency medical products and probably just a non-qualified marijuana industry that doesn’t offer much difference between medical and recreational.

Keich, for example, estimated that the number of registered patients will stay below 20,000.

Cannabis industry attorney Ryan Agnew said he doubts it will get even that large, in part because the new system actually provides a disincentive for businesses to opt in to “medical grade” products. The new regulations require extra testing, as well as different labels for medical products, all of which means extra costs to producers.

That leaves no incentive, in turn, for potential patients to register or make “medical” purchases.

“The cost of compliance, it dissuades producers from voluntarily declaring ‘medical grade,'” Agnew said. “It dissuades retailers from putting people on staff or training them, in the hopes that medical patients will walk in the door and make purchases. And there are not unique products – high-concentration specifically – that only patients can avail themselves of.”

Mirnateghi added that the costs extend to a risk that the producers’ “medical” products will be compliant with testing, because if the samples tested don’t pass muster, then entire batches have to be destroyed and businesses must eat the cost.

“The risk is so great, because if their lot fails the test for ‘medical grade’ product, they can’t revert that to regular product, so they have to destroy that entire lot,” Mirnateghi said. “It makes zero business sense, frankly.”

Will medical cannabis endure?

Even with all of these hurdles, the fact remains there are 155 retailers with medical marijuana consultants and endorsements. And it’s probable that many, such as Keich and Mirnateghi, will persevere on the medical side because they want to serve that demographic.

“Because of our tradition and our roots in medical marijuana and helping people, myself as a business owner, I suck it up and I do the stupid thing for the business,” Keich said.

Agnew believes medical cannabis will endure. He noted that marijuana will continue to be used for medical purposes in Washington State, likely by thousands of consumers. It’s just a question of how the industry is structured and whether businesses will focus on medical uses and manufacturing medical-specific products.

Mirnateghi said she’s planning to have a number of her employees obtain the same certification so she can continue as a medical marijuana provider, in part for the sake of customer service and because she views it as valuable staff training.

But when asked whether there’s a future for medical cannabis in Washington, she answered, “I don’t entirely know the answer to that question yet.”

John Schroyer can be reached at [email protected]

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 10 Comments

  1. Actual Weed Company October 26, 2016
    • John Schroyer October 26, 2016
    • In the business October 27, 2016
  2. Pam October 26, 2016
  3. Rick October 26, 2016
  4. David Hopkins October 26, 2016
  5. Hastings RH October 26, 2016
  6. Stray Cat October 27, 2016
  7. Norman Ives November 1, 2016

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